GSK's better-than-expected results overshadowed by Zantac litigation

By Louis Goss

GSK shares fell Wednesday as investors concerns' about lawsuits surrounding the pharmaceutical giant's discontinued heartburn drug Zantac outweighed any positive impacts from its better-than-expected second-quarter results which saw it lift its full-year outlook.

The British pharmaceutical company's results saw GSK lift its guidance for the second time this year after the company reported surging sales of its HIV drugs, cancer medicines, and Trelegy lung disease drug in the second quarter of 2024.

The surging sales saw GSK outstrip expectations, in reporting a 13% increase in its second-quarter sales to GBP7.9 billion ($10.1 billion), compared to the GBP7.5 billion expected by 11 analysts, FactSet data shows.

GSK's better-than-expected results were, however, overshadowed by news on Monday the company had decided to settle a case filed against it in an Illinois court over claims its Zantac heartburn drug increases the risk of developing cancer.

Shares in GSK (UK:GSK), listed on the London Stock Exchange, fell 2% on Wednesday having gained 9% over the previous 12 months.

Deutsche Bank analysts, led by Emmanuel Papadakis, said GSK's better-than-expected results had "clearly been hamstrung in the short term by litigation newsflow."

In its second quarter results, GSK upped its guidance in stating it now expects its core operating profits will increase by 11% to 13% in the full-year 2024. GSK previously upped its guidance in the first quarter in predicting a 9% to 11% increase in core operating profits.

The pharmaceutical company also said it expects its turnover will increase by 7% to 9% this year, having previously said it expects a 5% to 7% increase. GSK said this would see its earnings per share grow by 10% to 12%, up from its previous 8% to 10% range.

GSK's lifted guidance came as the company reported a 13% increase in sales of its HIV drugs, a doubling of sales of its oncology drugs to GBP400 million and a 41% rise in sales of Trelegy to GBP800 million.

The results, however, came after GSK said in a statement on Monday that it had reached a confidential settlement with former Zantac user Ronald Kimbrow to resolve the case he filed in an Illinois state court, without admitting any liability.

Citi analysts, led by Peter Verdult, explained that "Zantac developments have recently soured investor sentiment" towards GSK as they noted "alternative 'value plays'" including Roche and Sanofi are also offering more favorable outlooks.

In 2020, the U.S. Food and Drug Administration pulled all ranitidine-containing products, including Zantac, off the market following an investigation into whether an impurity in the medicines called N-Nitrosodimethylamine (NDMA) could increase the risk of cancer.

GSK said there is "no consistent or reliable evidence" that Zantac increases the risk of any cancer as it pointed to 16 epidemiological studies and vowed to defend itself vigorously.

The pharmaceutical company has previously settled a series of similar cases with other former Zantac users in courts in California and British Columbia.

In June a Delaware court also ruled that a group of 70,000 similar lawsuits surrounding Zantac should be allowed to go forward, in a decision that could make GSK liable to pay out around $3 billion in compensation, according to analysts.

-Louis Goss

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07-31-24 0545ET

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